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GameStop Falls Amid Preparations For A Capital Increase Following This Week's Meme Stock Craze

GameStop Falls Amid Preparations For A Capital Increase Following This Week's Meme Stock Craze
Retail favourite GameStop fell 26% on Friday following its announcement that it will sell up to 45 million shares in order to capitalise on this week's meme-stocks craze.
This week saw the greatest trading activity for the company's shares in three years, according to a slew of postings from Keith Gill's X account, "Roaring Kitty," whose optimistic predictions about GameStop sparked the 2021 meme-stocks craze.
"If your stock is up, four fold or five fold in very short order, and you're hurting for cash, it makes a lot of sense to go to the equity market and raise some cash," Paul Nolte, senior wealth adviser at Murphy & Sylvest, said.
"From a corporate perspective, it makes a ton of sense, but it throws some cold water on the recent rally, because now you're diluting the existing shareholders."
With its shares currently trading at $20.56, GameStop has a $6.3 billion market capitalization. Earlier last week, the company's market worth increased to $19.8 billion. This May, the stock has increased by about 90%.
The business filed for a mixed-shelf offering on Friday. Under this arrangement, a business can raise money by selling several securities in one or more distinct offers.
Additionally, GameStop predicted that first-quarter net sales will decrease from $1.24 billion to $872 million to $892 million.
The firm has suffered as a result of customers switching to internet shopping for video games and collectibles. The company's revenue is mostly derived from sales at its physical locations.
GameStop stated that, thanks to cost reductions, it anticipates its first-quarter net loss to decrease from the same period last year.
"Ultimately, the company must deploy its cash productively or continue to hope that it can issue more shares at elevated levels to forestall the inevitable," Wedbush analyst Michael Pachter said.
Similar action was taken on Monday when movie theatre giant AMC concluded a $250 million "at-the-market" share sale programme. In an effort to reduce its debt, the corporation has also entered into an equity-for-debt exchange agreement.
Following a record low last month, AMC's shares saw a 4% decline on Friday, bringing its monthly gains to 52%.

Christopher J. Mitchell

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